The Denver Commercial Real Estate Market saw a huge increase in sales during Q4. The four major property types saw $2,828,706,705 in total sales for Q4, which is more than $2,011,586,006 in total sales volume for Q3. This represents a large increase in sales volume. Office sales are still struggling due to work-from-home policies, older office buildings, higher interest rates, tighter lender terms, and economic uncertainty around this property type. With many companies planning to bring employees back to the office this year, we will closely monitor this trend and it's impact on office leasing and sales.
The four commercial property types we are tracking are: retail, multi-family, office, and industrial. It is interesting to look at the Commercial Real Estate Market as a whole and the individual property types. Let’s dive into supply, demand, new construction, vacancy rates, and rent growth for Denver Commercial Real Estate.
Below is a summary of key details for each property type.
Supply
There are 1,139 active listings across the four major property types with 397 retail, 145 multi-family, 321 office, and 276 industrial. In Q4 2023, we averaged 1,009 commercial listings, we have more active listings now. It is worth noting that the Denver MSA has 30,452 buildings totaling 894M sf of space. Hands down, the most square footage under construction is Multi-Family, with Industrial following closely behind. Retail has the lowest square footage under construction by far. Let’s take a look at demand.
Demand
Demand for commercial real estate is created by people (population growth) and businesses (job growth). When our population is growing, there is an increased demand for housing and shopping. When jobs are created, there is more demand for industrial, office, and retail. With that said, office demand has changed a lot since the pandemic, many employees were working from home. Now, many companies are bringing their employees back into the office, which will hopefully pick up the office demand.
There were 531 closed sales in Q4 2024, which is an increase from 332 closed sales in Q4 2023. Both the sales and sales volume have increased. The total dollar volume for retail, multi-family, office, and industrial was $2.82B in Q4 2024 compared to $1.57B in Q4 2023.
Another gauge for demand is net absorption. Absorption is a gauge of the space tenants need to live or operate their businesses. In Q4 2023, Denver absorbed 1.8M sf, but Q4 2024 saw 558k sf of absorption. This is a huge decrease. The large swing came from office losing (480k) sf of occupancy in Q4 2024 and retail losing (167k) sf of occupancy in Q4 2024. Let's take a look at new construction in the various property types.
New Construction
Developers started construction on 1.88M sf during Q4 2024. Which is up from 1.4M sf from Q4 2023. Therefore, new construction starts have picked up significantly. As for sf under construction, we had 17.5M sf in Q4 2024 compared to 13.3M sf in Q4 2023. The largest inclines are coming from 11.1M sf for Multi-Family and 4.4M sf for Industrial.
Retail construction starts accounted for 188k sf. Multi-family construction starts were 912K sf. Office construction starts were 205K sf, and industrial construction starts accounted for 1.1M sf.
Another factor to consider is the total sf of space under construction for each property type. Retail has 188K sf under construction. Multi-family has 11.1M sf under construction. Office has 1.8M sf under construction, and industrial has 4.4M sf under construction. Altogether there is 17.5M sf of Commercial Real Estate under construction in the Denver MSA.
Developers delivered just over 3.4M sf to the market in Q4 2024. There were 4.29M sf of deliveries in Q4 2023 so this is a much larger wave of new properties coming into the market. Retail delivered 12.5K sf. Multi-family developers completed 2.2M sf. Office developers delivered 0 sf. Industrial developers delivered 1.2M sf.
Next, let’s look at vacancy rates to see how much space is not occupied.
Vacancy Rates
A vacancy rate is a metric comparing the amount of unoccupied sf to the total sf of all the buildings in a market. Denver has 89M sf of vacancy for Commercial Real Estate in the MSA. Although this sounds like a lot, Denver has 894M sf of commercial buildings. Therefore, our commercial vacancy rate is 10.0%. As you can see in the chart below, Office historically has a higher vacancy rate than all the other property types.
If we are to understand commercial vacancy rates, we need to compare the current vacancy rates to the long-term vacancy rates. Retail, Multi-family, office, and industrial are all higher than their long-term average, which will limit rent growth.
Rent Growth
Rent growth could be lumped into demand but it is interesting enough to separate into a new paragraph. Industrial YOY rent growth came in at 0.6%. The next highest rent growth came from retail at 2.64%. Multi-Family decreased by (2.73%) and Office didn't grow, staying at 0.00%. The Bureau of Labor Statistics reported that the Denver MSA Consumer Price Index grew by 0.24% YOY in Nov 2024 for all items and 0.3% for all items less food and energy. Therefore, none of the rents are exceeding the inflation limit.
Final Thoughts
In Summary, supply, demand, new construction, vacancy rates, and rent growth are all good key performance indicators for the commercial real estate market in Denver. We have a decent supply of properties for sale. Demand for properties, as measured by sales volume, has increased significantly during Q4. Though the transaction volume of smaller properties has picked up. Developers are hard at work building multi-family and industrial properties, with total construction growing. Vacancy rates are different among the different commercial property types. We expect office vacancies to stay higher for the foreseeable future. Lastly, rent growth is stalling for retail, multi-family, and office. None of the property types are outpacing the current inflation rate.
Link to all of the presentations for each property type: